Performance Effects of
Information Technology Synergies
in Multibusiness Firms
Published March 2006
Farah Kabbani
Introduction
Describes sources of Information
Technology synergy & the conditions
under which IT synergies improve the
corporate performance of
multibusiness firms.
IT: strategic organizational resource
US corporations allocate more than 50%
of their capital investment and 4.2% of
annual revenues to IT
The challenge is in business units
operating in different industry
segments as they have different
competitive principles.
Seeking autonomy from the center
Lack of coordination  duplications
IT is applicable across many
industries so duplications are
avoidable
Cross-unit synergies arise from:
Shared tangible resources
Coordinated strategies
Pooled negotiating power
Shared know-how
Vertical integration
Combined new business creation
Shared tangible resources
Multibusiness firms should use
common hardware, software and
communications technologies, as they
are applicable across almost all
industries.
This is done by setting common
policies and standards for hardware,
software and communications
technology.
Coordinated strategies
Coordinated strategies refer to the
coordination of the IT strategies of
business units.
They create synergy because they
enable a firm to take joint actions and
minimize competition among its
business units.
Pooled negotiating power
Pooled negotiating power is obtained
when the IT vendor relations of the
business units are coordinated.
Uncoordinated IT vendor relations
across business units leads to
redundancy.
This leads to the firm overspending
instead of lowering their costs.
Shared know-how
Shared know-how refers to the use of
common IT skills and knowledge
across business units.
IT skills are applicable across a broad
range of functional areas and
industries.
Diversification Level of a Firm
The extent to which a firm operates in
distinct business segments
(industries) simultaneously.
Increasing diversification level
increases the number of business
segments in which the firm operates.
It also limits the firm’s ability to
coordinate IT resources across those
businesses.
Results
Conclusion
This study argued that a multibusiness
firm has an opportunity to exploit crossunit IT synergies by applying its IT
resources and IT management
practices across multiple businesses.
The study also proved that the level of
diversification of the firm limits the
firm’s ability to coordinate IT resources,
thus weakening performance.